Buyer Agrees to Pay Above APPRAISAL Price - Will FHA allow?

Question

Greetings everyone. I have a property I'm selling where the buyer has agreed to pay $25k above what it was last appraised for 2 mos. ago when another buyer was purchasing using a conventional loan. That buyer initially decided not to pursue the deal but has since changed his tune. However, he's too late and is now the backup buyer.

But I want to make sure my FHA buyer won't have any issues with HUD in agreeing to pay $25k more than the appraised price with the understanding that HUD will only loan against the appraised amount and nothing more. Comments by anyone in the know?

BTW, long story but the appraisal came in low because the appraiser didn't know historical homes or historical neighborhoods (which this home is and is in, respectively). Property came in about $50k BELOW asking price although we've had plenty of buyers agreeing to pay asking price and above. Go figure.

Ibrahim Hughes · Answer

I hear you Bill Gulley and I'm not writing them off totally at all - But having rehabbed for 12 years I've been through a lot with retail buyers. But always with renovated properties which we've renovated completely. And the issues were usally related to either title related or lender related and their mortgage commitment.  But to sell a large home that needs a lot of repairs to a retail buyer who is always second guessing themselves as to whether or not they are getting in over their heads.....no thank you. I would have done a lot better either wholesaling this one or renovating and selling retail.

Yes ALWAYS a learning experience.

Bill Gulley · Answer

I wouldn't write off retail buyers at all, many sellers say they won't sell FHA! Having a punch list before closing is a PITA, but you need to accept that as part of the business, every property won't be in perfect shape, every buyer won't be ideal, you'll get your share of title issues, additional closing requirements and other last minute issues. As you get your share of stuff, learning to roll with the punches and working through issues is part of it....it's always a learning experience.  :)

Ibrahim Hughes · Answer

OK Thanks everyone. Yes Bill Gulley - I knew I would need (and should want) another appraisal. But I wanted to make sure that I would get the opportunity to have another appraisal should I decide to renovate the property and sell to another buyer.

I changed my mind and decided to go with the Buyer with the conventional loan who came in late with the extra $25k. Both offers were the same but the late guy is stronger being that the appraisal, mortgage commitment and inspections (home and CO) are out of the way.

However this is THE last time I sell an as is property that requires extensive work to a retail buyer. Lesson learned.

Thanks again everyone.

Bill Gulley · Answer

Very true, if you get throgh an FHA appraisal and it's loanable, there aren't any deficiences to fix, but if you improved the property, add a garage, decks and pool house,  add a room, rearrange the floor plan turn another bedroom into a master suite, or do a kitchen gut rehab and update electrical, you'll need another appraisal.  Significant improvements...  :)

J Scott · Answer

Like Wayne Brooks said, I've never seen a new FHA appraisal *AFTER* a rehab, so I don't know the answer to this question!  Sorry...

Wayne Brooks · Answer

It would simply be the Buyer's required extra cash to bring to closing.

Luiz Souza · Answer

How would you play this out on the final HUD?  & Where would the extra money be placed?

Bill Gulley · Answer

If you can show significant improvements, reciepts you can ask for it to be appraised again. Significant will be up to the lender/underwriter..

Wayne Brooks · Answer

I haven't seen someone do any rehab, after an initial FHA appraisal.  I would Guess they would take the rehab into consideration.  An FHA lender should be able to tell you, if the other guys don't know.

Ibrahim Hughes · Answer

Wow!
 @J. Scott. Are you saying that even if I do a rehab on the property it wont appraise for higher in the next 6 mos!?